Today’s problems were yesterday’s solutions 1940-1980
Stanley Feld M.D.,MACE
As the population grew older demand for health insurance for people over 65 years old increased. In the mid 1960’s the government through Medicare provided health insurance for people over 65 years old. Prior the Medicare, many physicians and hospitals as well provided medical care free to people over 65 years old who could not afford care. The income lost from non paying patients was made up by those who had insurance or those who could afford to pay.
Suddenly, with the advent of Medicare there was more money in the system. All the stakeholders were generating more revenue. Cost of insurance to business was not increasing at first. Hospitals were very effective in generating revenue. Hospitals expanded to generate more capacity and revenue. All patient evaluation was done in the hospital. One could not get paid by the insurance industry if you worked the patient up outside the hospital. There was no payment for outpatient evaluation or outpatient surgery. Insurance companies were happy for two reasons. First: Insurance costs were not rising. Second: the insurance industry became the administrator of the Medicare insurance plan resulting in increased revenue and higher net profits. Physicians were happy because they were collecting fees for service that were not paid previously.
Aside from the increase in money in the system, restricting payment for outpatient evaluation and procedures was the first big politically motivated economic mistake. The minor facilitating stakeholders, the hospitals, and the insurance industry were beginning to take advantage of the two principal stakeholders (intellectual property of physicians and the economic rights of the patient). The incentives of the physicians, hospitals and insurance industry began to become misaligned because of greed. Physicians started to mistrust hospitals, and hospital administrators. The hospital administrators’ eye was on the bottom line. The physicians were on efficient economical patient care. Hospital costs and physician fees increased. The insurance industry was happy. They not only sold policies to the business, they also administered Medicare money. Once again the more money in the system, the more money they made.
Next how this misalignment accelerated!